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What's Coming For Apple Earnings? Here's What Pacific Crest Thinks

What's Coming For Apple Earnings? Here's What Pacific Crest Thinks
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Pacific Crest Securities' Andy Hargreaves and Evan Wingren released an earnings preview for Apple Inc. (NASDAQ: AAPL) on Thursday.

Pacific Crest Securities recommended woua reiterated Overweight rating. On January 7, the firm issued a price target of $132.

Looking at FQ1 earnings, the analysts see a "favorable" long-term risk/reward. "We believe Street expectations for F2016 iPhone units have been appropriately reset and see the potential for significant iPhone unit growth in the iPhone 7 cycle," the analyst commented.

Key Elements

The analysts focused on three key elements of the Apple story:

1. FQ2 (March) Revenue Guidance
Expectation: $49 billion to $52 billion
Estimate: $51.8 billion
Consensus: $56.0 billion

Hargreaves and Wingren noted they expect FQ2 to provide a clean read on run-rate iPhone unit volume for the cycle, and that it will not be affected by early cycle demand. "We believe buy-side consensus for FQ2 iPhone units is 45 million to 50 million, well below the sell-side consensus of 55 million," he commented.

2. FQ1 iPhone Units
Expectation: 72.7 million
Street Estimate: 76.0 million

The analysts elaborated, "FQ1 units will provide the most clean read on iPhone demand early in the 6s cycle. Maybe more importantly, FQ1 iPhone growth, or lack of, is likely to be viewed as a measure of confidence in management, who suggested on the last conference call that iPhone would continue to grow."

3. FQ2 Gross Margin Guidance
Expectation: 39.0 percent to 40.0 percent
Estimate: 39.8 percent
Consensus: 40.1 percent

The note explained further, "Concern about near-term iPhone units appears mostly priced in at current levels, which makes the potential for margin pressure the biggest risk to the shares, in our view. If gross margins are holding, longer-term investors can feel confident in continuing to own AAPL. Conversely, if gross margins are pressured, it could undermine longer-term expectations for profit stability."

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